Blog

The Top Retirement Challenges for Women in Transition

How does caring for a 70-, 80-, or 90-something parent affect the retirement plans of a 40-, 50-, or 60-something woman (especially a woman navigating a major transition)? How does it impact her family, as a whole? Are there financial strategies, savings vehicles, or any other tips women can use to mitigate the financial effects of part-time and full-time caregiving on their nest eggs?

As the financial advisor for many women in transition, I help clients wrestle with these questions almost daily. And the dilemma isn’t new: A 2002 study published in the Journal of Family Issues indicated that men are less prone to retire as a result of caregiving responsibilities for an older parent, a spouse, or another relative, while women in those same circumstances were more likely to retire.

Clearly, caregiving can often lead to work disruptions at the very least, and often an early, forced retirement for women in the latter stages of their careers. Social Security does not give credit for work absences due to caregiving and, likewise, most private pension plans do not credit years spent in caregiving toward vesting requirements. Therefore, women who leave jobs and take retirement in order to make time for caregiving are giving up significant financial resources that they would have otherwise been able to use to fund retirement. According to the Family Caregiver Alliance, the average female caregiver loses $324,000 in wages, pension payouts, and Social Security benefits over her lifetime.

For the family as a whole, the financial impact of a woman’s early retirement to become a “full-time” caregiver seems obvious from the above data. Because many of these women are in the “sandwich generation,” responsible simultaneously for the care of elderly parents and financial assistance to older adolescent or young adult children, such loss of income has serious implications.

How Can Caregivers Care for Themselves?

Perhaps the most important financial strategy that women facing the caregiving decision can utilize is careful planning and analysis of all options.

To start, women caregivers should gather all possible information about the effect of partial or full retirement on all sources of non-employment income: Social Security benefits, pension payments, and 401(k) and IRA plans (typically funded by pre-tax wages). They may wish to explore alternative or reduced-hour work arrangements with their employers, if such are available, in order to mitigate the loss of income and retirement benefits.

For married caregivers, spousal income and retirement benefits must also be factored in. As a matter of fact, for caregivers (or even soon-to-be caregivers) with a spouse who is still working, I highly recommend having the working spouse contribute the maximum to any existing 401(k), IRA, or 403(b) accounts, if possible. And remember, those who are 50 or older can exercise the catchup provision that allows an additional contribution on top of the limit for 401(k)s. For IRAs, the catchup provision is smaller, but still worthwhile. And, by the way, as long as the caregiver has some amount of income, they can contribute that to an IRA, up to the annual limit, and even without income, they may still be able to contribute to a spousal IRA.

Embrace the Power of Long-Term Planning

Again, the most important thing for a woman in this position to do is to plan ahead: to sit down with her financial planner or advisor and take a careful look at her spending and savings. Often, budget adjustments can free up money for savings, including tax-qualified accounts, without seriously limiting one’s lifestyle. A financial planner/advisor can help find these adjustments and develop strategies to integrate them.

Women caregivers should also review any powers of attorney (POAs) that might be in place — or should be — for the recipient of the care. If it became necessary to sell the parent’s home in order to fund long-term care, for example, would the caregiver have the authority to do that? This is a situation where advance planning can save huge stress and heartache later on, when, perhaps, an elderly parent is no longer mentally capable of giving legal assent.

And, finally, it’s worth finding out if the care recipient has any long-term care insurance policies in place. If they don’t, it might be worthwhile to look into obtaining one, depending on the cost and benefits available.

Stay Diversified, Stay YOUR Course!

Empyrion Wealth Management (“Empyrion”) is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Information pertaining to Empyrion’s advisory operations, services and fees is set forth in Empyrion’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Empyrion. The information contained in any third-party resource cited herein is not owned or controlled by Empyrion, and Empyrion does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Empyrion of the third party or any of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner or investment advisor.